Istanbul Prosecutor Muammer Akkas said in a written
statement yesterday that the investigation he was leading into
businessmen and officials for involvement in bribery, rigging
tenders, and fraud was stripped from him. Erdogan has said the
probe is a smear campaign orchestrated by his opponents.

“This is a serious state crisis,” Bulent Tezcan, deputy
chairman of the main opposition Republican People’s Party, or
CHP, said in a phone interview. “The government is violating
law in order to put the judiciary under control.”

Police refused court orders to search and detain suspects
and the judiciary is under pressure, Akkas said. The complaint
comes after more than 500 police chiefs were dismissed since the
sons of three cabinet ministers were among dozens detained.

Foreign investors have dumped Turkish bonds at the fastest
pace in two years as the scandal ensnared officials. Investors
pared their holdings by $532 million to a three-month low of
$53.8 billion in the week through Dec. 20, after selling a net
$1.38 billion the week before, the central bank said yesterday.

The Turkish lira fell the most in more than three months to
record lows against the euro and the dollar after Akkas released
his statement. It rose 0.2 percent at 9:57 a.m. in Istanbul
today. The yield on 10-year bonds surged 56 basis points
yesterday to 10.61 percent, the highest in more than 3 1/2
years. The Borsa Istanbul 100 index tumbled 2.3 percent.

Unconstitutional Measures

Turkey’s Supreme Board of Judges and Prosecutors said
yesterday that a regulation passed last week requiring
prosecutors to inform certain superiors of their investigations
was unconstitutional. The new regulation was cited by Istanbul
Chief Prosecutor Turan Colakkadi as a reason to remove Akkas
from the case.

Police officers’ refusal to obey prosecutors’ orders, and
the removal of prosecutor Akkas from the case, has blocked a
next wave of searches and detentions against 30 people for
corruption involving a financial sum of $100 billion, Zaman
newspaper reported, without saying how it got the information.

‘Urgent Need’

The probe has become the battleground in a struggle between
Erdogan’s followers and those of a U.S.-based imam, Fethullah
Gulen. Erdogan’s supporters have lashed out at followers of
Gulen for instigating the crackdown. The cleric broke with
Erdogan this year, rupturing a partnership that has helped
sustain the single-party government since 2002.

“There is an urgent need to solve this legal deadlock and
restore rule of law,” Tezcan said.

Colakkadi denied government interference and said Akkas
shared “inaccurate information with media.” The government
began requiring prosecutors and police to inform superiors and
administrative authorities before carrying out any detentions as
of Dec. 21.

The Supreme Board of Judges and Prosecutors said in a
statement that police must obey orders from prosecutors and
exerting government control over judiciary process violates the
constitution.

The deadlock comes after Erdogan replaced 10 of 26 members
of his cabinet, tapping loyalists to help him fend off a scandal
that claimed its first victims from his inner circle this week.
His party asked its disciplinary board to expel three lawmakers
for criticism of the alleged graft, NTV television said today.

The new cabinet is “based on loyalty, designed to restore
discipline and for damage control,” said Nihat Ali Ozcan, an
analyst at the Economic Policy Research Foundation in Ankara.

Looming Elections

Six months after routing protests in Istanbul, the current
battle may determine the fate and legacy of the 59-year-old
premier ahead of elections next year.

“This is the independence struggle for a new Turkey,”
Erdogan said Dec. 25. “Plots against Turkey will unravel.”

Erdogan said the probe amounted to an attempted coup. He
told reporters on a return flight from Pakistan on Dec. 24 that
his family may be targeted to tighten the political noose around
him.

“They are targeting my son, implicating him through
Turgev,” Erdogan said, referring to the Turkey Youth and
Education Service Foundation run by his family. “They will be
left empty-handed if they try to hit at Erdogan in this way.”

‘Under Siege’

Erdogan Bayraktar, environment and urban works minister and
an associate of Erdogan for two decades, sent markets tumbling
this week by calling for the premier to follow him in resigning.
Bayraktar, whose son was detained in raids that began on Dec.
17, said before quitting that Erdogan approved construction
projects that are under investigation, in an unprecedented
breakdown in party unity.

“The prime minister would need to resign only if
allegations reach him,” Yasar Yakis, a former foreign minister
in Erdogan’s administration, said in an interview.

Erdogan replaced Zafer Caglayan as economy minister with
Nihat Zeybekci, a lawmaker for Denizli whose parliamentary
biography says he was a businessman in the textile industry.

“For the first time since getting into office, Erdogan
looks under siege and clearly on the defensive while unity
within his party is starting to show some cracks,” said
Wolfango Piccoli, an analyst with Teneo Intelligence in London.
“If the pressure intensifies in the days ahead and the probe
gets closer to him and his family, Erdogan may have to resort to
snap elections to try to regain momentum.”